Unemployment rate at 4% for the first time in 2 years, but economists advise not to worry.

• For the first time since January 2022, the unemployment rate increased to 4% last month.
• Despite economists' claims of not being concerned, they are closely monitoring unemployment insurance claims and any layoff announcements that may signal a recession.
• The increase in the number of 20 to 24-year-olds entering the workforce in May may make it harder for new college graduates and job seekers to find employment.

The Bureau of Labor Statistics reports that the unemployment rate, which has been low for two years, has been gradually increasing in the first half of the year.

Last month, the unemployment rate rose to 4.0% from 3.9% in April, marking the first increase since January 2022. The rate had been as low as 3.4% in April 2023.

Despite the recent increase in employment rate, it is still below the historical average, experts note.

While some large companies have announced layoffs, economists believe that people should not worry too much because the number of jobs and the size of the labor force are both increasing.

The unemployment rate in May was significantly affected by young adults aged 20 to 24 years old joining or rejoining the workforce, as stated by labor economist Marisa DiNatale.

During the summer break, when school is closed, there is usually an increase in job searches among teenagers, college students, and recent graduates.

"According to DiNatale, the age group is highly unstable, with graduates facing challenges in finding employment after college. However, there is no proof of a significant job loss in the economy."

Payrolls soar, 'no real indicator for a recession'

Another factor increasing economists' confidence is the growth in nonfarm payrolls. In May, nonfarm payrolls increased by 272,000, exceeding the Dow Jones consensus estimate of 190,000, as shown by BLS data.

Stephen Juneau, U.S. economist at, finds it reassuring that the labor force participation among prime-age workers is high, with a percentage of 83.6% in the workforce, which is the highest it has been in at least 20 years according to BLS data.

According to Juneau, the labor market data does not provide a clear sign of an impending recession when viewed in the aggregate.

Economists are not worried about a 4% unemployment rate but are monitoring its rate of increase.

One way to measure the effectiveness of fiscal policy is through the "Sahm Rule," named after economist Claudia Sahm.

The rule evaluates the difference between the average unemployment rate over the past three months and the lowest rate reported in the past year. If the three-month average is 0.5 percentage points higher than the yearly low, then the unemployment rate is increasing at a fast pace, indicating a possible recession.

The Sahm Rule was at 0.37 after the May jobs report, meaning the unemployment rate must remain at 4% or higher for the next two reports to increase the three-month average by 0.5% above the yearly low of 3.5%.

"Juneau stated that the Sahm Rule, a modern indicator of a recession, is not expected to surpass the 0.5% threshold in the upcoming month."

When to worry

Moody's DiNatale stated that she is closely monitoring the historically low unemployment insurance claims, with 238,000 Americans filing for benefits during the week ending June 15, as reported by the BLS.

"If they exceed 360,000, it's usually time to worry. However, we're not close to that. What's more concerning is if employers start laying off people. We're searching for significant and sudden changes."

Juneau stated that he wouldn't worry about the number of jobs added in future reports unless it fell below 100,000.

"Juneau stated that sudden job losses can occur unexpectedly and can cause the labor market to snowball. However, he added that this is not expected in the next labor report, but there is always a risk of it happening."